Articles Posted inSecurities and Exchange Commission

In an emergency court order, the Securities and Exchange Commission (SEC) announced that they will be freezing all assets in relation to an alleged insider trading case. This case involved the oil-and-gas conglomerate Chevron Corporation and their intentions to acquire Anadarko Petroleum Corporation, which was reported to yield roughly $2.5 million in profits.

Chevron is a multinational energy corporation based in the United States. They announced that they intended to invest in outstanding shares of Anadarko, which is also based in the U.S. and sells petroleum. While the buying of shares warrants no action on its own, Chevron intended to acquire them for $65 per share in cash and stock. This type of investment would represent a 38 percent premium over Anadarko’s closing price pre-announcement.

The SEC complaint filed in the U.S. District Court for the Southern District of New York identified a series of transitions that could be considered suspicious. Days before the announcement, unknown traders allegedly used foreign brokerage accounts in the United Kingdom and Cyprus to purchase out-of-the-money call options through U.S. based brokerage firms and on U.S. based exchanges. After the announcement, Anadarko shares rose in price significantly. Brokerage account customers benefited greatly by either utilizing their right to gain large positions of Anadarko stock at a discount or selling many of the option contracts for profit.

In hopes of helping society grow and to allow everyone gain more insight into exactly how crypto tokens will be viewed in the eyes of the law, the U.S. Securities and Exchange Commission (SEC) has released a regulatory guidance document that outlines how and when cryptocurrency should be used and what certain tokens will be classified as, though mainly in reference to securities.

The first to state that regulators were working to develop new guidance for crypto tokens was SEC Director of Corporation Finance, William Hinman, in November of 2018. Others have also made it clear that this was a solid plan for the future of society including Valerie Szczepanik, FinHub head, and Commissioner Hester Peirce.

Hinman revealed that the guidance would be in “plain English” and allow anyone invested in crypto tokens to seamlessly be able to determine its qualification as a security offering. The document includes a plethora of useful information as well as examples of both tokens and networks that could be considered securities under the law, and a few examples of those that do not.

Charlie Jinan Chen, a Boston restaurant owner, is accused of insider trading of Vistaprint stock after illegally receiving confidential information from a former Vistaprint employee. His wife, Shui Foon Mak, is also being charged for her part in reaping the illegal profits, which are believed to be in excess of $850,000. But, how did this all work?

Insider Information Leaked from 2012-2014

Vistaprint is an eCommerce platform that specializes in selling customizable business materials and other products. From 2012-2014, Chen received insider information from an employee of Vistaprint, identified only as “Jenny” in court documents. Jenny was an accounting manager that reportedly handled Vistaprint’s quarterly financial statements, which included confidential information that would remain unavailable to the public prior to a set date for release. It was this information that Chen allegedly used to generate fraudulent profits.

Russia-based Mobile TeleSystems PJSC (MTS), the largest mobile telecommunications company in that country and an issuer of publicly traded securities in the United States, has settled with the Department of Justice and Securities and Exchange Commission (SEC) paying $850 million to resolve charges of paying bribes in Uzbekistan. A former Uzbek official who is the daughter of the former president of Uzbekistan and the former CEO of Uzdunrobita LLC, another MTS subsidiary, were said to have participated in a bribery and money laundering scheme involving more than $865 million in bribes from MTS, VimpelCom Limited (now VEON) and Telia Company AB (Telia) to the former Uzbek official in order to secure her assistance in entering and maintaining their business operations in Uzbekistan’s telecommunications market.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Geoffrey S. Berman of the Southern District of New York, Special Agent in Charge Raymond Villanueva of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Washington, D.C. and Chief Don Fort of IRS Criminal Investigation (IRS-CI) made the announcement.

Gulnara Karimova, 46, a citizen of Uzbekistan, was charged in an indictment filed in the Southern District of New York on March 7 with one count of conspiracy to commit money laundering. Karimova is a former Uzbek official who allegedly had influence over the Uzbek governmental body that regulated the telecom industry. Bekhzod Akhmedov, 44, a citizen of Uzbekistan and the former Uzbek executive, was charged in the same indictment with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), two counts of violating the FCPA, and one count of conspiracy to commit money laundering. Karimova’s and Akhmedov’s case is assigned to U.S. District Judge Kimba Wood of the Southern District of New York.

One of the informants will get $37 million, the third-biggest payout in the history of the SEC’s whistleblower program, the agency said in a statement Tuesday. The SEC didn’t name the company involved or the people getting the awards but said the two provided high-quality assistance.

“Whistleblowers like those being awarded today may be the source of ‘smoking gun’ evidence and indispensable assistance that strengthens the agency’s ability to protect investors and the capital markets,” Jane Norberg, chief of the SEC’s whistleblower office, said in the statement.

Tipsters are eligible for payouts if they voluntarily provide the SEC with unique information that leads to a successful enforcement action. Compensation can range from 10% to 30% of the money collected in a case where sanctions exceed $1 million. The SEC has paid out about $376 million since issuing its first award in 2012.

While everyone enjoys a nice slice of the pie, Domino’s Pizza has had a corporate insider file a detailed whistleblower report with the SEC against top-level officers and various staff members. This case involves general misconduct and an alleged scheme involving misleading franchisors and fraudulent investments.

On February 19, 2019, the franchise community website Blue MauMau reported that “[a] corporate insider has filed a well-documented whistleblower report with the [SEC] against Domino’s Pizza, its top-level officers, and various staff members.” Domino’s allegedly forced an unapproved advertising increase to franchisees in order to pay a $1.85 billion Securitization Transaction to gain higher stock prices and dividends.

Details of this case came directly from a concerned insider at Domino’s Pizza who noticed the presence of possible misconduct and decided to blow the whistle on this major pizza chain.

In a U.S. Securities and Exchange Commission filing, the company, TechnipFMC plc, stated that they have set aside $280 million in possible settlement funds involving bribery-related offenses. The payment would be delivered to authorities in the United States as well as Brazil and France.

TechnipFMC plc is a company based in London that is often found engaging in projects involving oil and gas. They were formed through a merger in 2017, including the UK-based FMC Technologies Inc. and French oil-services giant Technip SA. In 2010, Technip SA paid $338 million to resolve its own issue involving FCPA offenses in Nigeria that involved using massive bribes to win contracts worth $6 billion. They then used these bribery-won contracts to build massive liquefied natural gas (LNG) facilities on Bonny Island in Nigeria.

Lumber Liquidators lied to investors after a“60 Minutes” Episode and has agreed to pay a total penalty of $33 million. The payment is for filing a materially false and misleading statement to investors regarding the sale of its laminate flooring from China to its customers in the United States about the chemicals used in its wood products including formaldehyde. In 2013 and 2014, CARB informed Lumber Liquidators that flooring samples collected from its California stores failed deconstructive testing for formaldehyde emissions. Lumber Liquidators’ own deconstructive tests of the same products yielded similar results.

A U.S. laminate supplier informed Lumber Liquidators that it tested a Chinese laminate sample purchased from one of Lumber Liquidators’ stores in the United States and that the sample emitted high levels of formaldehyde. Lumber Liquidators took only limited steps to determine the validity of the suppliers’ concerns, and instead sought to generate support for its position that deconstructive testing was not a valid test method, the company admitted.

Lumber Liquidators, a public corporation headquartered in Toano, Virginia, and one of the largest retailers of flooring products in the United States, entered into a deferred prosecution agreement (DPA) in connection with a criminal information filed today in the Eastern District of Virginia charging the company with securities fraud. The case was primarily focused on the fact that Lumber Liquidators knowingly filed a false and misleading statement to investors broadly denying the allegations featured in a March 2015 episode of 60 Minutes, and affirming that the company complied with California Air Resources Board (CARB) regulations.

The New York town of Oyster Bay has been granted a settlement by the Securities and Exchange Commission (SEC) that will allow for no fines relating to a 2017 SEC lawsuit involving alleged financial fraud. This agreement is contingent on the assurance that the town hire a municipal finance consultant to review bond disclosures for three years.

The town of Oyster Bay as well as their former town supervisor John Venditto, who was not involved in the settlement, have been accused of defrauding investors by keeping vital information from them, including side deals with local restaurants to indirectly guarantee private loans. Those investigating the case have stated that during the time of the 2017 suit Oyster Bay was not disclosing loan guarantees that totaled $20 million during 26 securities offerings in the years 2010 to 2015

Allegations such as these could have resulted in much harsher punishments for the town, as they have in the past with other fraud cases. However, Oyster Bay received a light settlement that allowed them to avoid fines and seek professional financial assistance for up to three years. Initially, though the SEC sought to impose a court-appointed consultant for a five-year period with the power to prevent borrowing, but this was changed throughout the settlement.

According to the Securities and Exchange Commission’s 2018 Annual Report, 262 tips were received from whistleblowers regarding insider trading and resulted in a total of 56 charges throughout the year. As one of the SEC’s most successful years in combating insider trading, it is evident that the combination of whistleblower tips and modern technology are the key to securing the integrity of the securities market.

What is Insider Trading?

According to the SEC’s Investor.gov, “Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.”